Can I Negotiate the Interest Rates on My Student Loans?

Can you negotiate student loan interest rates?

This was the question in my head as I was paying off my Grad PLUS Loans. Thanks to an interest rate of 7.9%, I was paying hundreds of dollars each month in interest alone — it felt criminal.

Unfortunately, I soon discovered that my federal loan rates weren’t up for negotiation. However, I did learn how to lower student loan interest rates another way.

Here’s what you need to know about how to lower the interest rate on your student loans, whether they’re federal or private.

Can you negotiate student loan interest rates?

Interest rates on your federal student loans are set by Congress each year — which is bad news for borrowers looking to get a deal on their interest rate.

“The interest rates on federal education loans are set by law and cannot be negotiated,” said financial aid expert Mark Kantrowitz of

So if you have subsidized or unsubsidized Direct student loans, Grad PLUS or Parent PLUS loans (which tend to have higher interest rates), you don’t get an option to request a lower rate from the federal government.

Nor can you call your loan servicer to negotiate student loan interest rates. That strategy may work with some credit cards, and you should definitely try if you have credit card debt. However, it’s ineffective for student loans.

Still, while there’s no way to negotiate student loan interest rates on federal loans, there is a way you can get a small reduction on your interest rate.

“With federal and private student loans, borrowers who agree to repay the loan through auto-debit, where the monthly payment is automatically transferred from your bank account to the lender, can get an interest rate reduction of 0.25% or 0.50%,” Kantrowitz said.

So as long as you’re not worried about overdrawing on your bank account, consider putting your student loan payments on auto-pay to save on interest.

Private lenders determine their own interest rates

While federal student loan interest rates are set by federal law, private loan rates are more flexible. The rate you get depends on a number of factors, which can include your (or your cosigner’s) credit and income. The stronger credit you have, the better the rate you could get.

Since lenders set the rates, it seems possible they might be open to negotiation. But here too, according to Kantrowitz, there’s little room to haggle over price, and lenders aren’t likely to change their mind once they’ve assigned a rate.

“Terms of private student loans are set by the lender,” Kantrowitz said. “However, I have never seen a lender negotiate the interest rate on a new loan. They use formulas based on the credit score of the borrower and cosigner, if any.”

Your best bet, then, is to compare multiple offers to find the lowest rate before you borrow, but you should also see if adding a cosigner could help.

“You might be able to get a lower interest rate by using a cosigner who has a much better credit score,” says Kantrowitz.

Note that, just as with federal loans, some private lenders also offer a 0.25% discount on your interest rate for setting up autopay on your loans.

Some private lenders are more flexible than others

In most cases, you probably won’t have much luck asking your private lender for a lower interest rate. But if you’re really struggling to pay back your loan, your lender might be willing to work with you.

“The main situations in which I’ve seen borrowers successfully negotiate a reduction in the interest rate or loan balance — as opposed to a different repayment plan — involved borrowers who were in default and in a ‘you can’t squeeze blood from a stone’ situation,” Kantrowitz said.

In many of these cases, the student loan borrowers proved serious financial hardship that was unlikely to improve anytime soon.

“I’ve also seen cosigners whose borrower defaulted on the loan negotiate with the lender to remove the default from their credit history and reduce the interest rate in exchange for the cosigner agreeing to make the monthly payments via auto-debit,” Kantrowitz said.

Loan servicers and lenders can be notoriously rigid, so when they do bend the rules, it’s under pretty rare circumstances. If you haven’t borrowed yet, it could be worth exploring lenders who offer flexibility (such as deferment or forbearance) in the event you lose your job or go back to school.

Refinance your student loans for better rates

By now you’ve probably realized that the possibility of lowering your interest rate on your student loans just by asking is difficult to achieve. However, there’s a simpler way to lower your interest rate — refinancing your student loans.

If you have the credit score and income to qualify (or can apply with a creditworthy cosigner), refinancing could get you lower rates on one or more of your loans.

Refinancing also gives you a chance to restructure your debt with new terms and to combine multiple loans into one, thereby simplifying repayment. For example, you may be able to take advantage of CommonBond’s flexible repayment options or Laurel Road’s competitive low rates and fees. Of course, you’ll want to be careful about refinancing federal loans with a private lender, since it means you’d lose access to federal repayment plans and forgiveness programs.

But if you’ve thought through the pros and cons, student loan refinancing could be a savvy way to save money on interest and make your monthly payments easier to manage. And you won’t have to go through an awkward phone call with your loan servicer trying — and probably failing — to negotiate your interest rate.

Bottom line: Negotiating interest rates vs. refinancing

So can you negotiate student loan interest rates just by asking nicely? Probably not. But can you refinance for better rates? Definitely, as long as you can qualify.

Most lenders probably aren’t open to negotiating except in rare circumstances. Unless you’ve found yourself in dire financial straits, you’re unlikely to have much luck asking for a reduction in interest payments.

But refinancing might be able to get you a better rate and save you money on your debt. And if you haven’t borrowed loans yet, make sure to shop around with a few lenders before picking one. That way, you can find a loan with the best possible rate to finance your education.

Rebecca Safier contributed to this report.

Note: This report was originally published June 29, 2016.

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